As discussed in more detail in this post, junior liens may be stripped from a home if they are totally unsecured (i.e., the value of the house is less than the balance owed on senior liens). Typically, Bankruptcy lawyers will file a motion to strip the unsecured junior lien shortly after the case is filed, as the outcome of the motion us usually important in drafting the Chapter 13 Plan. That is our practice in the Northern District of Georgia, but is that how it works in other Bankruptcy courts? No – other courts (even Georgia courts) have different methods for which a lien can be stripped. Some courts have allowed the debtor to include the lien strip as a provision in the Plan, leaving it up to the lender to object to the Plan if they dispute the debtor’s ability to strip the lien. If they do not object, or the Judge rules against them, the Plan confirmation becomes a binding order of the court and the lien is stripped. In a recent case in the Southern District of Georgia, the Judge held that the debtor must filed an adversary proceeding to strip the lien, which is a much more complicated and time consuming process. He disagreed with another Judge in his very own district, who has allowed lien stripping by motion or in the Plan.
Judges often disagree on the substantive law and procedural rules that apply in a case. An experienced Bankruptcy lawyer will not only know the law, but will know the requirements of the Judges in his or her district. The stakes are often high since, for example, the failure to strip a lien can cost the client their home or thousands of dollars in payments down the road.